Monday, 2 June 2014

Who has jurisidiction to regulate satellite broadcasters?

Professor Lorna Woods

The current regulatory framework
for electronic content is broadly divided into two: content and
infrastructure. This bifurcated design,
in theory, allows platforms to be regulated in a comparable way rather than be
subject to different rules based on the content they carry. Essential infrastructure (electronic
communications) is subject to a market based approach (the so-called ‘communications
package’) and content is subject to specific minimum standards regulated in the
country of origin (the audiovisual media services directive (AVMSD) and
the e-commerce directive).

In both instances the regulatory
framework is provided by EU secondary legislation (mainly directives), but it
seems that the different measures ascribe regulatory competence as between
Member States differently, and allow a regulator different scope of action.
Moreover, there is not an exact fit with the underlying treaty free movement provisions. This horizontal divide based on a service and
technology neutral approach is neither as simple nor as complete as
policymakers might have hoped, bearing in mind the range of intermediaries
operating in the market and the range of services each operator might provide.
The result is that there are unclear boundaries as to the applicable law and,
as corollary of that, the relevant regulator. The difficulties are exemplified
in the recent CJEU judgment in Case C-475/12 UPC v. NMHH.

UPC is essentially a retailer of
electronic content: it provides packages of radio and audio-visual broadcast
services transmitted via satellite and subject to conditional access technology
(ie, a requirement to pay for a subscription).
Following a company restructuring, consumers in Hungary were provided
with the service by a UPC subsidiary based in Luxembourg. Following complaints by Hungarian consumers,
the Hungarian communications regulator, NMHH, asked UPC for information which
UPC refused to supply on the basis that NMHH was not the competent regulator,
either in terms of the substance of the service and regulatory framework, or in
terms of geographic jurisdiction. UPC
claimed that the Luxembourg authorities, if any, should regulate and that the
Luxembourg authorities had stated that they had regulatory competence. NMHH
fined UPC for non-compliance. UPC appealed
and the matter came before the Hungarian courts. The questions referred fell
into two groups: on the scope of the communications package (specifically the FrameworkDirective (FD) on telecom regulation); and on its relationship with the
underlying Treaty free movement provisions. The questions referred are:

(1) May
Article 2(c) of the Framework Directive be interpreted as meaning that a
service by which a service provider supplies, for consideration, conditional
access to a package of programmes which contains radio and television broadcast
services and is retransmitted by satellite is to be classified as an electronic
communications service?

(2) May
the Treaty on the Functioning of the European Union be interpreted as meaning
that the principle of the free movement of services is applicable to the
service described in the first question, in the case of a service supplied from
Luxembourg to Hungary?

(3) May
the Treaty on the Functioning of the European Union be interpreted as meaning
that, in the case of the service described in the first question, the country
of destination, to which the service is sent, is entitled to limit the supply
of that type of services by requiring that the [supplier of the] service has to
be registered in that Member State and has to be established as a branch or
separate legal entity, and allowing this type of services to be supplied only
through the establishment of a branch or separate legal entity?

(4) May
the Treaty on the Functioning of the European Union be interpreted as meaning
that administrative proceedings relating to the services described in the first
question, regardless of the Member State in which the undertaking supplying
that service operates or is registered, will be subject to the administrative
authority of the Member State which has jurisdiction on the basis of the place
in which the service is supplied?

(5) May
Article 2(c) of the Framework Directive be interpreted as meaning that the
service described in the first question must be classified as an electronic
communications service, or must such a service be classified as a conditional
access service supplied using the conditional access system defined in Article 2(f)
of the Framework Directive?

(6) On
the basis of all the foregoing, may the relevant provisions be interpreted as
meaning that the service provider described in the first question must be
classified as a provider of electronic communications services pursuant to
European Community [sic] law?

EU legislation

Although from the perspective of
the consumer, UPC looks like a broadcaster, UPC does not take editorial
responsibility for the content of the programmes, so it does not fall to be
regulated under the AVMSD (which in any event does not cover radio). In ruling
so here, the Court follows its previous judgment in Case C-518/11 UPC Netherland. The definition of ‘electronic communications
service’ for the FD encompasses services normally provided for remuneration
which consist wholly or mainly in the conveyance of signals on electronic
communications networks, including transmission services in networks used for
broadcasting, but excludes services providing, or exercising editorial control
over, content transmitted using electronic communications networks. The Court’s phraseology on this point (paras
36-39 of the judgment) is opaque, talking in terms of ‘not excluding’ the
communications package. So while that package applies here, the question
remains open the extent to which AVMSD or other content based provisions can
also apply to content retailers, depending on the nature of the service
provided. Of course, were UPC to have been deemed to be responsible for content
within the AVMSD, it would probably have been subject to the regulation of the
Luxembourg authorities, since that Directive usually confers jurisdiction upon
the broadcaster’s country of origin.

Having excluded broadcasting, the
question still remained as to whether UPC fell within the Communications
Package, a question which turned on the meaning of ‘electronic communications
service’ in Art. 2(c)FD. Here, however,
the point at issue was the fact that UPC did not use its own transmission
facilities but contracted with a third party for satellite services. The Court,
reasoning to ensure the effectiveness of the regime, agreed with the approach
suggested by the Advocate General and held that use of third party facilities
was irrelevant to the classification of the service. The defining criterion of
the electronic communication service is whether the provider is
responsible as regards end-users
for transmission of the signal to provide the relevant service.

It had also been suggested that
if the service were a conditional access system (defined in Article 2(f) FD),
the provisions concerning electronic communications services would not be
applicable. Both the Advocate-General and the Court dismissed this suggestion,
so 'a conditional access system may be attached to an electronic communications
service for the broadcasting of radio or television programmes, without that
service losing the status of an electronic communications service’.

So, the Communications Package applied, but
this still left the issue of whether the Hungarian authorities could regulate
(and if so, to what degree). The FD contains no attribution of jurisdiction in
the way, for example, the AVMSD does.
The CJEU dealt with this aspect by considering the powers of the
national regulatory authorities, in particular as regards authorisation. It noted that the Authorisation Directive
(which forms part of the Communications Package and deals with the granting of
licences and other forms of authorisation to provide relevant services) does
not oblige the national authority of the jurisdiction in which the services are
provided to recognise authorisation decisions taken in the Member State from
which they are supplied (judgment, para 86) – here referring to the Luxembourg
authorities’ statement that they had regulatory competence in relation to UPC.
As a result, Member States in whose territory the recipients of services reside
may impose conditions on the provision of those services, as permitted by the
Communications Package. Under Article 11b
Authorisation Directive, these include provisions to the effect that national
authorities may request from undertakings information that is proportionate and
objectively justified for verification of compliance with conditions relating
to consumer protection. In sum, the
supply of electronic services may be monitored by the authorities of the Member
State in which the recipients of the service reside.

Treaty rules on free movement
of services

The Hungarian court asked whether Article 56 TFEU precluded rules which
require undertakings which supply electronic communications services in
the territory of a State to register those services, or rules requiring them to
establish in that State a branch or a legal entity separate from that located
in the Member State of transmission. Note
that where there has been full harmonisation via directive, only those rules in
the relevant legislation are permitted; otherwise, some recourse to national
law is permitted. The Communications Package also envisages the possibility of
further national regulation, in addition to that specified by the package
(recital 7 and Article 1(3) Framework Directive), and further provisions allow
the regulatory authorities discretion to take action to further general
objectives, including protecting the consumer interests. This means that the area has not been
totally harmonised and that any national rules in this area fall to be assessed
by reference to the relevant Treaty freedom: here, services (see e.g. Case C‑17/00
De Coster; Case C‑250/06
United Pan-Europe Communications Belgium and Others).

The normal rules governing the freedom to provide services allocated
regulatory responsibility to the Member State of establishment, and that
secondary regulation must take into account home state regulation. There is clear potential for abuse here, and
there has been a stream of cases in the broadcasting sector in particular,
where companies have established in a Member State with a favourable regime and
‘broadcast back’ to a particular State. The Court has only rarely accepted that
this is abuse or, alternatively, that such a company is actually established in
the destination state. These arguments
were unsuccessful here, even though UPC does not provide services within
Luxembourg; this is very much in line with the Court’s standard approach.

As regards the notification
requirement, Article 3 Authorisation Directive contains a legal framework
dealing with the conditions which the regulatory authorities of a Member State
may impose in order to allow undertakings established in other Member States to
supply electronic communications services in the territory of the host State.
Provided that the host Member State follows the terms of Article 3,
notification requirements are not precluded. Further, given that Article 3
seems to harmonise this aspect exhaustively, requirements going beyond Article
3 are not compatible with EU law – they cannot be judged by reference to the
treaty freedoms. So, the Hungarian authorities may impose such notification
requirements.

Note that application of the Treaty freedoms might have
led to a different result. In Canal Satellite Digital (Case
C-390/99), the Court held that a requirement on the operators of conditional
access systems to register before carrying out services, in order for the
Spanish authorities to check technical competence, in relation to a service
provider established in another Member State, would not be proportionate if it
duplicated checks in the home Member State.

Finally, the Court ruled that the
requirement for an establishment is not specified by the Communications
Package, so it does fall to be assessed by reference to the Treaty freedoms.
While requiring an establishment may lead to more effective monitoring of
authorisation conditions, such extensive monitoring is not justified. In any event, an establishment requirement
‘is the very negation of the freedom to provide services and has the result of
depriving Article 56 TFEU of all effectiveness’ (judgment, para 104) and
cannot therefore be permitted under the Treaty.

The judgment in this case shows
the importance (and complexity) of determining whether (and to what extent) a
particular field of law is harmonised by EU secondary legislation, and
therefore to what extent it remains regulated by the Treaty freedoms; and also
the importance of determining which specific secondary legislative regime
applies. It is interesting to note that although the EU took what might be termed a 'light touch' approach to telecom regulation in general, basing the system on competition law and policy principles, and assuming a distinction between the public interest and the use of that system, that process is not complete. In particular, the communications package allows space for a range of consumer protection issues and it is this, ironically, which gives
more regulatory power to the receiving State than the Treaty freedoms or the audiovisual
services legislation does.